Tax Tid-Bits

Don’t Be a Statistic! Watch Out for These Common Errors

According to the IRS, the six most common errors taxpayers make on their income tax returns are:

1. Mathematical errors. Yes, the most common mistakes by taxpayers are with arithmetic. Errors result in correction notices, with a bill for any resulting deficiency. For over-payments, the taxpayer has the option of receiving credits or refunds or applying the amount to future taxes.
2. Omission of interest and dividends. The IRS cross checks about 96% of cases in which it receives notice of a taxpayer’s interest and dividends from banks or other financial institutions.
3. Failure to track investment basis. The basis (original value) of an investment actually increases when its initial financial gains are taxed and reinvested.
4. Marriage in December. Better to wait a month—the tax savings could pay for the honeymoon.
5. Loss of receipts. Deductions require physical proof. Receipts and checks should be kept for at least three years.
6. Failure to bunch deductions. Certain expenses are deductible if they exceed a minimum percentage of income. Bunching such deductions into a single year or prepaying next year’s expenses on December 31 can allow deductions that would not otherwise qualify.